Hammer candlesticks are bullish reversal signs. In fact, you see a lot of the hammer candlestick in downtrends. The bulls come back in to hammer out a base. Watch our video below to learn more about hammer candlesticks and their importance when trading.
Hammer’s don’t always stop a downtrend. Look at the news surrounding that stock because emotions affect price movement. This is something the legendary rice trader Homma realized.
Because of his realization we have Japanese candlesticks patterns. In fact, candlesticks are used to gauge emotion in the markets. As a result, a stocks actual value might be different than the price it’s currently trading at.
The stock market is a tug of war between the bulls and the bears. As a result, charts are full of bullish candlesticks and bearish candlesticks. A hammer candle pattern forms when a base is being hammered out.
The stock trades significantly lower than the opening price but rallies later in the day to close at or above it’s opening price.
You tend to see a hammer candle in a stock that’s been in a downturn. It’s finding it’s base. Just because it’s found its base doesn’t mean the bulls are coming back in however. They are gaining strength though.
Whereas doji candlesticks show indecision, hammer candlesticks are reversal candles. Getting confirmation is always good though.
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A hammer candlestick meaning can be defined as finding support through panic selling. The wick shows that sellers drove price low that day. However, it had a strong finish indicating buyers came back in at the end of the day.
A hammer candle pattern is at it’s most effective when there are at least 3 declining candles in a row. A declining candle really shows that panic selling. Each day has a lower low illustrating the fear and panic selling continuing.
Shorts can be apart of this as well. They see these declining prices and decide to short sell. The bears are in control. Now, the bulls may notice how inexpensive a stock has become and all the sudden it looks attractive to them.
A high wave candlestick or a long legged doji candlestick could be forming instead of a hammer candle. That’s why you can wait for conformation. Or look at the pattern instead of getting hung up on what each candle is.
We teach how to trade hammer candlesticks on our live daily streams. Check out our trading service to learn more.
A hammer candlestick chart pattern can be confirmed when the candlestick after the hammer candle has higher lows. The rise in price could be short sellers covering their positions. That’s why it’s important to wait for a bullish confirmation.
The wick on a hammer chart pattern shows there’s still plenty of sellers. You need more buying pressure and volume. What does volume mean in stocks is an important part of trading.
Volume gives you that buying pressure you need. It can come in the form of a gap up or a nice bullish candle. Because hammers show there are still a lot of sellers a lot of volume can go a long way to reinforce how valid the reversal is.
Hammer candles usually form around support levels which is why you should know how to draw support and resistance. The simple moving average formula is a moving average that is used a lot for this as well.
Use the VWAP trading strategy too. Candlesticks real bodies and wicks map out key areas of support and resistance too. Moving average crossovers coupled with reversal candles like hammer candlesticks and volume can confirm a trend reversing.
Trading the trend is something every trader does. They’re creatures of habit. They trade patterns, trends and support and resistance.
That’s why it’s important that every trader learns this.
Hammer candlesticks can be used with swing trading techniques or day trading strategies that work. The key is study and practice. If you’ve ever played an instrument you know how practicing betters your ability.
Most times as a kid you’d rather be playing instead of practicing but your mom made you. The same can be said for the stock market. You learn so much by studying and then practicing even if you would rather be watching a movie.
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